At the end of the contract term, our precise financial objective is either zero (for the annuity) or 10,000 real/nominal (for the endowment). To achieve that result, by how much must we adjust the initial pricing discount rate?

Extracted figures for capital and income contracts, for both inflation cases, are shown in a table as actual values. Having thought about it a bit longer, I am no longer persuaded that we need to think about absolute terms.

For a fully inflation-protected endowment fully invested in conventional bonds, the MtM approach would have required an adjustment of 0.40% pa, whereas the Off approach would have required an adjustment of 0.65% pa (see interactive chart as well). Mark-to-market isn’t always worse than off-market but it mostly is.